Forum-Selection Issue Heads to Supreme Court

WASHINGTON (CN) – The Supreme Court agreed Monday to resolve a circuit split over whether a contract’s forum-selection clause implicates a different law to resolve motions for dismissal or transfer. J-Crew Management won a subcontract to help Atlantic Marine Construction build a child-development center at Ford Hood in Texas. Though the subcontract agreement that J-Crew signed included a forum-selection clause, it contained no choice of law provision. Atlantic Marine Construction had wanted to litigate any disputes in Norfolk, Va., at either the federal- or state-court level, but J-Crew filed its federal complaint against Atlantic in Austin, Texas. The court refused to either dismiss or transfer the case under Section 1404(a) of federal law, and a divided three-judge panel of the 5th Circuit affirmed in November 2012. Atlantic argued that Federal Rule of Civil Procedure 12(b)(3) and Section 1406 would allow the trial judge to enforce the forum-selection clause, but the federal appeals court said those rules would apply only if venue was not proper in the Western District of Texas. “In turn, the choice between Rule 12(b)(3) and § 1406 on the one hand and § 1404 on the other depends on whether private parties can, through a forum-selection clause, render venue improper in a court in which venue is otherwise proper under § 1391,” Judge Patrick Higginbotham wrote for the majority. “Federal circuit courts are divided on the issue.” The decision notes reliance on the 1988 Supreme Court decision StewartOrganization Inc. v. Ricoh Corp. “The Supreme Court held that when an action is filed in federal court under diversity jurisdiction, federal law, specifically § 1404(a), not state law, governs a motion to transfer to another federal court pursuant to a forum-selection clause,” Higginbotham added. “In doing so, the Stewart court ‘implicitly held that a forum selection clause does not render the venue of an otherwise properly venued claim improper’ because ‘Section 1404(a) is the proper procedural tool for transferring a case only when venue is proper in the chosen district; if venue is improper, Section 1406(a) is used to transfer venue.’ The Stewart court explained that a forum-selection clause should receive ‘the consideration for which Congress provided in § 1404(a).’ Thus, Stewart ‘strongly implies that Congress’ determination of where venue lies cannot be trumped by private contract and that, therefore, a forum selection clause cannot render venue improper in a district if venue is proper in that district under federal law.’ … Dismissal under Rule 12(b)(3) or transfer under § 1406 would deny district courts both a role in making the transfer and its capture of Texas law. While Atlantic Marine bargained for a choice of forum, it failed to obtain a choice of law provision.”